Critically Analyze The Financial Management Functions

Critically Analyze The Financial Management Functions
2nd Assignment
ALLAMA IQBAL OPEN UNIVERSITY

(Department of Business Administration) Assignment # 2 Financial Management (5535)
TOPIC: CRITICALLY ANALYZE THE FINANCIAL

MANAGEMENT FUNCTIONS
Submitted to: Sir Waqar Akbar Submitted by: Ishtiaq Ahmed (0333-6824303) AH-526270
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ACKNOWLEDGEMENT
All praises to Almighty Allah, the most Gracious, the most Beneficent and the most Merciful, who enabled me to complete this assignment. I feel great pleasure in expressing my since gratitude to my teacher, for his guidance and support for providing me an opportunity to complete my Project. My special thanks and acknowledgments to Mr. Zeeshan for providing me all relative information, guidance and support to compile the project. I will keep my hopes alive for the success of given task to submit this report to my honorable teacher Sir Waqar Akbar, whose guidance; support and encouragement enable me to complete this assignment.
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EXECUTIVE SUMMARY
The todays world moves at neck breaking speed & it calls for a decisive action Quantum Leap thinking The financial management is generally concerned with procurement, allocation and control of financial resources with a one main goal of increase in shareholder wealth. PTCL has a Profit oriented management and one of the most profitable organization in the public sector. PTCL ha a big market share and big service provider in Pakistan. But PTCL can generate more profit by adding more products in product line and by expanding its network in more areas. PTCL has to give special attention on employees training and Motivation because there exist a Resistance in the organization from the employees. PTCL must have to control on debts because its harmful for the organization.
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Table of Contents
Table of Contents
Title page Acknowledgement Abstract Table of contents Introduction to the issue Practical study of organization
Page No
01 02 03 04 05 08
Practical study of organization with respect to the 13 issue SWOT analysis Recommendations Conclusion References 17 18 19 20
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Introduction to Topic
Meaning of Financial Management:
Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise.
Scope/Elements:
1. Investment decisions: includes investment in fixed assets
(called as capital budgeting). Investment in current assets is also a part of investment decisions called as working capital decisions. 2. Financial decisions: They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.
3. Dividend decision: The finance manager has to take decision
with regards to the net profit distribution. Net profits are generally divided into two: a. Dividend for shareholders- Dividend and the rate of it has to be decided. b. Retained profits- Amount of retained profits has to be finalized which will depend upon expansion and diversification plans of the enterprise.
Objectives of Financial Management:

The financial management is generally concerned with procurement, allocation and control of financial resources of a concern. The objectives can be:
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1. To ensure regular and adequate supply of funds to the concern. 2. To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders? 3. To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost. 4. To ensure safety on investment, i.e., funds should be invested in safe ventures so that adequate rate of return can be achieved. 5. To plan a sound capital structure-There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.
Functions of Financial Management:

1. Estimation of capital requirements: A finance manager has
to make estimation with regards to capital requirements of the company. This will depend upon expected costs and profits and future programmes and policies of a concern. Estimations have to be made in an adequate manner which increases earning capacity of enterprise. 2. Determination of capital composition: Once the estimation has been made, the capital structure have to be decided. This involves short- term and long- term debt equity analysis. This will depend upon the proportion of equity capital a company is possessing and additional funds which have to be raised from outside parties. 3. Choice of sources of funds: For additional funds to be procured, a company has many choices likea. Issue of shares and debentures b. Loans to be taken from banks and financial institutions c. Public deposits to be drawn like in form of bonds. Choice of factor will depend on relative merits and demerits of each source and period of financing.
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Critically Analyze The Financial Management Functions 4. Investment of funds: The finance manager has to decide to
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allocate funds into profitable ventures so that there is safety on investment and regular returns is possible. 5. Disposal of surplus: The net profits decision has to be made by the finance manager. This can be done in two ways: a. Dividend declaration - It includes identifying the rate of dividends and other benefits like bonus. b. Retained profits - The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company. 6. Management of cash: Finance manager has to make decisions with regards to cash management. Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintenance of enough stock, purchase of raw materials, etc. 7. Financial controls: The finance manager has not only to plan, procure and utilize the funds but he also has to exercise control over finances. This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.
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Practical Study of the Organization
Pakistan Telecommunication Company Ltd

Pakistan Telecommunication Company Limited (PTCL) is the largest telecommunication company in Pakistan. The company provides telephony services nation-wide and is the backbone for country's telecommunication infrastructure despite arrival of a dozen other telecommunication companies, including giants like Telenor and China Mobile. The company operates around 2000 telephone exchanges across the country, providing the largest fixed line network. Data and backbone services such as GSM, CDMA,
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Broadband Internet, and IPTV, wholesale are an increasing part of its business. Originally fully owned by the Government of Pakistan, this holding has since 2006 been reduced to 62%, when 26% of shares and control was sold to Etisalat - and the remaining 12% to the general public.
Company Profile
PTCL is all set to redefine the established boundaries of the telecommunication market and is shifting the productivity frontier to new heights. Today, for millions of people, we demand instant access to new products and ideas. More importantly we want them for their better living standards with increased values in this evershrinking globe of ours. We are setting free the spirit of innovation. PTCL is going to be your first choice in the future as well, just as it has been over the past six decades.
Business & Corporate Users:

For clear communication the first choice of business circles is PTCL telephone for local, nationwide and international calling. Today businesses can have 10-100 lines with modern day services to meet their needs. Now you get options like Caller-ID, call-forwarding, callwaiting, Call Barring, to name a few.
Other business specific services include:

0800-Toll free number, 0900-Preminum rate services, VPN-Virtual Private Network, Audio Conference Service, Digital Cross Connect (DXX), ISDN (Policy), Teleplus (ISDN/BRI), Digital Phone Facilities/ Modification Charges, UAN, UIN.
Nationwide Infrastructure:
We have the largest Copper infrastructure spread over every city, town and village of Pakistan with over million installed lines. The network has over 6 million PSTN lines installed across Pakistan with
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more than 3 million working. Furthermore installed capacity of broadband is more than 0.6 million ports spread across 318 cities and town of the country.
EVO Wireless Broadband:

PTCL EVO 3G Wireless Broadband is Pakistans fastest wireless internet which offers its customers superior 3G internet experience. EVO Wireless Broadband is enabling the wireless broadband revolution in Pakistan with flexibility to roam freely like never before. PTCL EVO has revolutionized the way people connect to the internet by offering true mobility. PTCL EVO is currently offering its services in more than 18 cities on EV-DO technology offering speeds up to 3.1 Mbps. PTCL EVO gives its customers the advantage of nationwide roaming with seamless internet connectivity across Pakistan. The coverage of EVO is not limited to 100 cities as EVO customers can enjoy CDMA-1X data rates of up to 153.6 Kbps at more than 1000 destinations across Pakistan. The portable, small & stylish EVO USB device is a multipurpose device which not only delivers fastest wireless internet but can also be used for Voice Calls by inserting a Vfone SIM and for data storage by inserting a standard Micro SD Card
Broadband Pakistan:
PTCL Broadband is the largest and the fastest growing Broadband service in Pakistan. In less than three years of it launch, PTCL has acquired approximately 668,376 Broadband customers in over 605 cities and towns across Pakistan, leading the proliferation and awareness of Broadband services across Pakistan. With its entry in this market segment, PTCL opened up a broadband culture in Pakistan, where till a couple of years back there was very little awareness in the country about broadband & high speed
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internet services. PTCL made the broadband technology affordable by lowering the barriers to entry, by geographically bringing the service within the reach of a common user across Pakistan and by continuous improvements in customer care for the service. Unique offers that makes PTCLs Broadband unmatchable are special packages for the student segment, FREE modem and installation, Availability of Wi-Fi Modems, FREE dial up service for its Broadband customers and FREE access to movies, music, classical Pakistani dramas, cricket matches, online gaming, educational and religious content on PTCLs entertainment portal BUZZ, (the access to PTCL Buzz & Gaming lounge is exclusive to PTCL Broadband subscribers). PTCL also offers multiple FREE personalized e-mail accounts exclusively to its broadband users. In addition, PTCL recently doubled its broadband speed for all its existing and new customers at the same price, making 1 MB as its minimum offered speed. For a connection you simply dial 0800 8 0800 or visit www.ptcl.com.pk
History:
From the beginnings of Posts & Telegraph Department in 1947 and establishment of Pakistan Telephone & Telegraph Department in 1962, PTCL has been a major player in telecommunication in Pakistan. Despite having established a network of enormous size, PTCL workings and policies have attracted regular criticism from other smaller operators and the civil society of Pakistan. Pakistan Telecommunication Corporation (PTC) took over operations and functions from Pakistan Telephone and Telegraph Department under Pakistan Telecommunication Corporation Act 1991. This coincided with the Government's competitive policy, encouraging private sector participation and resulting in award of licenses for cellular, card-operated pay-phones, paging and, lately, data communication services.
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Pursuing a progressive policy, the Government in 1991, announced its plans to privatize PTCL, and in 1994 issued six million vouchers exchangeable into 600 million shares of the would-be PTCL in two separate placements. Each had a par value of Rs. 10 per share. These vouchers were converted into PTCL shares in mid-1996. In 1995, Pakistan Telecommunication (Reorganization) Ordinance formed the basis for PTCL monopoly over basic telephony in the country. The provisions of the Ordinance were lent permanence in October 1996 through Pakistan Telecommunication (Reorganization) Act. The same year, Pakistan Telecommunication Company Limited was formed and listed on all stock exchanges of Pakistan PTCL launched its mobile and data services subsidiaries in 2001 by the name of Ufone and PakNet respectively. None of the brands made it to the top slots in the respective competitions. Lately, however, Ufone had increased its market share in the cellular sector. The PakNet brand has effectively dissolved over the period of time. Recent DSL services launched by PTCL reflect this by the introduction of a new brand name and operation of the service being directly supervised by PTCL. As telecommunication monopolies head towards an imminent end, services and infrastructure providers are set to face even bigger challenges. The post-monopoly era came with Pakistans Liberalization in Telecommunication in January 2003. On the Government level, a comprehensive liberalization policy for telecoms sector is in the offering. In 2005 Government of Pakistan decided to sell 26 percent of this company to some private corporation. There were three participants in the bet for privatization of PTCL. Etisalat, an Abu Dhabi based company was able to get the shares with a large margin in the bet. Government's plan of privatizing the corporation was not welcomed in all circles; countrywide protests and strikes were held by PTCL workers. They disrupted phone lines of institutions like Punjab
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University Lahore along with public sector institutions were also blocked. Military had to take over the management of all the exchanges in the country. They arrested many workers and put them behind bars. The contention between Government and employees ended with a 30% increase in the salaries of workers.
Practical Study of the Organization with respect to the Issue

Financial Management Functions of PTCL:
Estimation of capital requirements Determination of capital composition Choice of sources of funds Investment of funds Disposal of surplus Management of cash Financial controls
Analysis of Financial Management Functions of PTCL:

1.
Analysis of Financial Statements
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As on June 30, 2011

Particulars 2011 2010
Balance Sheet
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Cash Marketable Securities Accounts Receivable (net) QUICK ASSETS Inventory Prepaid Assets Other Current Assets TOTAL CURRENT ASSETS Property, Plant & Equipment Intangible Assets Investment in Shares Other Long-Term Assets TOTAL ASSETS 6,422,144,000 13,493,865,000 10,171,530,000 _______________ 30,087,539,000 4,075,863,000 0 11,286,834,000 _______________ 45,450,236,000 88,219,285,000 3,079,031,000 6,681,965,000 7,337,210,000 _______________ 150,767,727,00 0 _______________ 24,922,197,000 5,270,581,000 17,866,468,000 2,949,770,000 _______________ 51,009,016,000 0 83,613,704,000 16,145,007,000 _______________ 99,758,711,000 _______________ 150,767,727,00 0 _______________ 11,906,448,000 21,017,790,000 10,760,974,000 _______________ 43,685,212,000 5,201,991,000 0 5,333,038,000 _______________ 54,220,241,000 87,567,351,000 3,320,670,000 5,607,439,000 3,332,378,000 ________________ 154,048,079,000 ________________ 26,114,171,000 9,972,151,000 16,193,198,000 2,379,000,000 _______________ 54,658,520,000 0 83,183,074,000 16,206,485,000 __________________ 99,389,559,000 _______________ 154,048,079,000 _______________
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Trade Payables Other Current Liabilities Long-Term Debt Defferd tax TOTAL LIABILITIES Preferred Stock Common Equity Retained Earnings TOTAL EQUITY TOTAL LIABILITIES & EQUITY
Pakistan Telecommunication Limited Income Statement As on 30 June 2011

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Particulars Net Revenue Cost of Goods Sold GROSS PROFIT Administration Selling and Marketing Other Operating Expenses Depreciation Amortization OPERATING INCOME Interest INCOME BEFORE TAXES Taxes NET INCOME
Prior year 63,506,173,000 (37,732,282,000) 25,773,891,000 (8,935,261,000) (1,817,071,000) (92,118,000) 0 14,929,441,000 (908,524,000) 14,020,917,000 (4,869,732,000) 9,151,185,000
62,309,173,000 (38,258,711,000) 24,050,462,000 (7,223,780,000) (2,142,324,000) 0 0 14,684,358,000 (403,240,000) 14,281,118,000 (4,986,966,000) 9,294,152,000
2. Analysis of Cash flow statements:

PTCL Cash flow statement For the year ended June 30, 2011
Particulars Prior period Opening cash Operating activities Investing activities Financing activities Closing cash 31,702,352,000 (13,029,562,000) (11,627,447,000) (13,188,458,000) 19,916,009,000.0 0 Current period
14,889,524,0 00 (28,904,490,00 0) (12,088,920,00 0) (2,742,000.00) 31,702,352,0 00.00

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3. Ratio Analysis:
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SWOT Analysis
Strength:
Profit Oriented Management One of the Profitable Organization in the Public Sector Big internet provider Huge cable network in 360 cities
Weakness:
Employees Resistance Less creative Lack of Corporate Social Responsibility
Opportunities:
Can generate more profit by Service expansion in further areas Employees Motivation Can expand Business by Expansion in Wife Services 3G Technology
Threats:
Negative Leverage Ratio Naya Tell and other competitors
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Recommendation
Following are some recommendations for PTCL:
Should have to control on Debts. Should have to train and motivate the employees Should have to expand the Network. Add more Products in the Product Line. Should inject new Blood.
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Conclusion
I have conclude that, The financial management is generally concerned with procurement, allocation and control of financial resources with a one main goal of increase in shareholder wealth. PTCL has a Profit oriented management and one of the most profitable organization in the public sector. PTCL ha a big market share and big service provider in Pakistan. But PTCL can generate more profit by adding more products in product line and by expanding its network in more areas. PTCL has to give special attention on employees training and Motivation because there exist a Resistance in the organization from the employees. PTCL must have to control on debts because its harmful for the organization.
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Reference
Project report Critically Analyze the Financial Management Functions www.ptcl.com.pk www.slideshare.com http://www.google.com http://www.wikkipedia.com
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Critically Analyze The Financial Management Functions

ALLAMA IQBAL OPEN UNIVERSITY

TOPIC: CRITICALLY ANALYZE THE FINANCIAL